How to Create an Income Stream in Retirement

If you ask ten advisors how to create an income stream in retirement, you’re going to get ten different answers.

And most of those answers are going to be based on what they want to sell you.

So let’s take a broader, more honest approach.

Why the 4 Percent Rule Falls Apart

For decades, the industry loved the so-called 4 percent rule.

Leave your money in the market.
Keep playing the game.
Take four percent out every year and hope for the best.

That theory sounds great in a perfect bull market.

But it doesn’t hold up in real life.

When markets drop 20 percent and you’re still pulling income out, the math doesn’t work anymore. The rule has been dissected, challenged, and ultimately shown to be unreliable outside of ideal conditions.

Don’t confuse a bull market with genius.

Option One: Live Off the Interest

If you have enough money to live off interest alone, do it.

I mean that sincerely.

If CDs, high-yield money markets, or fixed instruments throw off enough interest to cover your income needs, then don’t complicate things. Peel off the interest and leave the principal intact.

This isn’t about millions and millions of dollars. If your income needs are low and Social Security or a pension already covers most of your bills, interest income might be all you need.

There’s nothing wrong with that.

You Already Have Retirement Income Sources

Here’s something people don’t like hearing, but it’s true.

Social Security is an annuity.
If you have a pension, that’s an annuity too.

Those income sources form your income floor.

Once you know how much reliable income is already coming in, the rest of the decision gets clearer.

When Interest Isn’t Enough

If you can’t live off interest alone, then the conversation changes.

That’s where lifetime income annuities come into the picture.

There are four ways to create lifetime income with annuities:

Single Premium Immediate Annuities
Deferred Income Annuities
Qualified Longevity Annuity Contracts
Income Riders

None of them are better than the others.

It all comes down to two questions that drive every recommendation we make.

What do you want the money to contractually do?
And when do you want those contractual guarantees to start?

Those two questions matter more than any product pitch.

Timing the Income

Do you want income now?
Three years from now?
Seven years from now?
Ten years down the road?

Once you know the timing, you can solve the math either way.

You can ask:

“If I have this lump sum, what income does it create?”
or
“If I need this monthly income, how much does it take to fund it?”

That’s how real planning works.

Clearing Up Annuity Myths

Let’s clear up a few things.

Money does not automatically disappear when you die. That’s just one of many ways annuities can be structured. If you want one hundred percent of the money to go to your family, it can be structured that way.

Inflation protection is another misunderstood area.

There is no perfect annuity for inflation. Some contracts offer cost-of-living adjustments, but they are not free and come with trade-offs. Anyone promising market upside, no downside, bonuses, and inflation protection all at once is selling fiction.

If it sounds too good to be true, it is.

Every single time.

Joint Income for Married Couples

If you’re married, income decisions don’t stop with you.

Joint lifetime income can be structured so payments continue unchanged for your spouse, even if you’re gone. That’s part of using annuities for what they will do, not what someone says they might do.